Question

What are the conditions under which a minimum wage may be bad for an economy?

Answer 1

If the economy has a large pool of unskilled workers, minimum wage is likely to reduce the overall welfare because these workers will be replaced by semi-skilled workers or even machines. If the labor market has a highly elastic demand for labor, then a minimum wage would displace a large number of workers, resulting in a large pool of unemployed workers.

Health status of the working class matters because regions where health benefits are not accessible easily, minimum wage is likely to degrade productivity by resulting in poor overall health status of the region. There should not be a large parallel economy because those unemployed can find their way to become petty criminals for meeting their ends. These are some of the conditions under which a minimum wage may be bad for an economy.